The Doctrine Was Not to Have One; Greenspan Will Leave No Road Map to His Successor

By EDMUND L. ANDREWS

Published: August 26, 2005

CORRECTION APPENDED

Alan Greenspan was at the height of his success as chairman of the Federal Reserve in November 1999: the economy was booming, inflation was negligible and people at all levels were becoming wealthier.

But even as Mr. Greenspan was being celebrated as the economy's ''maestro,'' he sounded far less omniscient behind closed doors.

''We really do not know how this system works,'' he told members of the Fed's policy-making committee in Washington, according to transcripts released earlier this year. ''It's clearly new. The old models just are not working.''

Now, as he nears the end of his 18-year tenure in the job, Mr. Greenspan is leaving a brilliant record but a murky legacy.

Despite numerous economic shocks and financial excesses, unemployment and inflation are both lower now than many economists considered possible when Mr. Greenspan took office in 1987. But whoever moves into his spacious office on Constitution Avenue early next year faces a near-impossible task in replicating Mr. Greenspan's success in managing monetary policy.

That is because Mr. Greenspan abhorred rules, was skeptical about economic models and jettisoned practices that were enshrined by the likes of Paul A. Volcker, his predecessor, and Milton Friedman, a winner of the Nobel in economic science. If Mr. Greenspan stood for anything, it was flexibility and the freedom from dogma.

''The Greenspan standard has for the most part meant what Greenspan wanted to do,'' said Alan S. Blinder, a professor of economics at Princeton and a former vice chairman of the Federal Reserve.

Mr. Blinder will be one of many economists at a Federal Reserve symposium beginning here Friday that will be devoted to discussions about the ''post-Greenspan era.'' Before that, however, the gathering will open with what is expected to be Mr. Greenspan's swan song speech as chairman of the Fed.

Mr. Greenspan, whose term as a Fed governor expires in January and cannot be renewed, is thought likely to devote his speech to the lessons he learned running the central bank longer than all but one of his predecessors, William McChesney Martin Jr. Expected to be listening particularly closely at the conference are three of the leading candidates to succeed him: Ben S. Bernanke, President Bush's chief economic adviser; Martin S. Feldstein, an economist at Harvard; and R. Glenn Hubbard of Columbia University.

But for all his triumphs, Mr. Greenspan also presided over a stock market bubble that burst and, in helping minimize the damage from that fiasco, laid the groundwork for the housing boom -- and potential bust -- that followed.

Moreover, the United States has run up heavy foreign debt partly because the Federal Reserve drove interest rates so low that Americans borrowed more and saved less.

Mr. Greenspan's approach to such challenges was to roll with the punches, basing his management of the economy on a refusal to believe in firm rules, doctrines or models.

''A surprising problem is that a number of economists are not able to distinguish between the economic models we construct and the real world,'' he remarked back in 1984, when he was still head of a private consulting firm.

As Fed chairman, Mr. Greenspan has celebrated the hunt for ''anomalies'' or trends that seemed to defy what the models predict. He had little faith in widely accepted concepts like the ''natural rate'' of unemployment, which many economists long believed to be about 6 percent.

He jettisoned the practice of basing policy on growth in the money supply, a concept enshrined by Mr. Friedman as the best way to prevent inflation.

And though he has cultivated the reputation of a hard-liner on reducing inflation, Mr. Greenspan has often put more emphasis on driving up employment.

At 78, his hair is thinning and his gait is becoming stiffer. But he may be as famous as any pop star; he is certainly a larger-than-life figure for political leaders and economists. At a hearing in July before the House Financial Services Committee, lawmakers from both parties showered him with so much praise that they began running out of accolades.

''All the adjectives have been used up,'' complained Representative Steve Pearce, Republican of New Mexico, who then declared that Mr. Greenspan was a ''handsome man.''

By almost all accounts, Mr. Greenspan has been an exceptionally successful steward for the economy. In the last 18 years, the nation has endured only two recessions, one of them quite mild. There were four downturns in the previous 18 years.

The core rate of inflation has edged down to about 2 percent from 4 percent when he took office. Unemployment has averaged 5.5 percent over the last 18 years, compared with nearly 7 percent in the previous 18 years, and it is now down to about 5 percent.

Mr. Blinder, a Democrat who battled with Mr. Greenspan over the Fed's communication policy, said his former boss might well be the best central banker who ever lived.

Allen Sinai, chief global economist at Decision Economics, pointed to one reason Mr. Greenspan was so willing to rely on his gut instincts. ''He didn't go to one of the top schools: Harvard or M.I.T. or Stanford or Northwestern,'' Mr. Sinai said. ''I think that was an advantage. He didn't get brainwashed into one of the doctrines.''

Correction: August 30, 2005, Tuesday
An article in Business Day on Friday and an entry in the Five Days feature in Business Day on Saturday about Alan Greenspan's tenure as chairman of the Federal Reserve misstated his age. He is 79, not 78.